The S&P futures are up 4.75 early Sunday evening and if they hold that should give us a positive start to the week. The Nasdaq futures are +20 but the Dow futures are only up 9 points.
The end of quarter, beginning of quarter and holiday volatility should be behind us. Market direction next week should be based on earnings expectations and comments from Janet Yellen. She has three opportunities to say something stupid and tank the market. She is not likely to say too much that is positive about the economy because that would lift the indexes and cause her grief. She has gone on record over the last couple weeks saying stocks and bonds are overvalued. She does not want to crash the market but she does not want to send it soaring to new highs either. That suggests she will be as neutral as possible.
The Fed Beige Book on Wednesday is not likely to move the market. They go out of their way in that publication to call growth moderate regardless of which way the economy is moving.
The S&P rebounded back over critical support at 2,420 but only by 5 points. While it was a decent rebound it was still lackluster compared to the bigger picture. The chart is still bearish until we get a close over 2,440. That has been solid resistance since June 19th. A move back to 2,440 would put it over downtrend resistance and the minimal resistance at 2,430.
The Dow closed right in the middle of its recent congestion range and could go either way. The chart is not specifically bullish but it is not bearish either. The volatility over the last three weeks has been marked by daily triple digit swings, normally in the opposite direction from the day before. That is one of the signs of a market top. Traders are evenly matched between buyers and sellers but they are only active at the extremes of the ranges. The middle ground is neutral territory. The Dow needs to close over 21,500 to reestablish its bullish trend.
The Nasdaq recovered from an ugly close on Thursday that was well under critical support at 6,100. The index rebounded in Friday's short squeeze but failed to reach the initial resistance at 6,175. The FAANG stocks are hot and cold depending on the day but the prior momentum that brought the Nasdaq to the recent highs has faded. Multiple dips have been bought and in most cases the rebounds failed. The Nasdaq needs to move over 6,250 to reset a bullish bias but over 6,300 to begin a new leg higher.
The small cap Russell 2000 has been trading in a tight range between 1400-1425 and closed only about 12 points below its recent high on Friday. The Russell is benefitting from the surge in financial stocks, which represent 17% of its weighting.
While I am glad to see the positive futures, I am far from convinced the market is going to move higher. It depends on Yellen's skillful wording of her speeches and answers and the outlook for earnings. We have had 80 warnings from S&P stocks and there could be more this week now that the quarter has ended and those hopes for a last minute revenue surge have ended. All it would take would be a couple high profile warnings and the market sentiment could change quickly. Currently, investors are expecting positive earnings with around 10% growth. The 20 or so early reporters have been in the 7% growth range but they are too few to really determine a trend.
I would be careful in being overly long until a direction appears. Sideways is not a direction. Being this close to the two worst months of the year in August and September, any rally to the resistance highs is bound to be sold. If you can sit on your hands until we actually see a market breakout, you may save some money and there may be a better buying opportunity in our future.
Enter passively, exit aggressively!
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